While broker-dealers are placing increasing importance on home office model portfolios, the recent extreme market volatility has made many financial advisers and brokers skeptical of such asset allocation, a report from kasina finds.
In fact, in the last six months, advisers’ usage of home office models has decreased from 67.1% to 61.6%.
Nonetheless, major broker-dealers expect that 31% of their asset flows in the next 12 months will come through model portfolios.
“The key roadblock to the growth of model portfolios has been adviser pushback,” said Hari Krishnaswami, product manager of kasina’s FA Vision service. “Some advisers are reluctant to place greater assets in models because of distrust in the asset allocation or investment decisions made by home office research. An additional dear among advisers is that turnkey solutions like model portfolios diminish their value proposition and inhibit the portfolio’s portability.”
The driver for fund companies and distributors will be how well these model portfolios perform, Krishnaswami said. “We anticipate the overall fund flows controlled by the home office to grow, but they will need to perform well in volatile markets in order to gain advisers’ trust,” he said.
Fund companies need to offer competitive products and partner effectively with broker-dealers, Krishnaswami suggested.